How Much Do Private Lenders Charge?

As I discussed in a previous article, there are 4 different types of income you can earn from private lending investments; Interest, points, origination fees, and late fees & default interest.

I also talked about how the interest rates and assorted fees will vary from lender to lender, based on the risk associated with any one loan.

But how much typically do private lenders charge real estate investors to access fast, flexible cash to close their deals today?

Well, let’s find out…

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Private Lending Interest Rates

As we all know, interest rates in general have been on the up-and-up since June 2022. This has of course had a knock-on effect on the rates charged by private lenders.

So first, let’s take a step back and get some context…

Short-Term Funding Interest Rates

According to Private Lender Link, an online marketplace matching private lenders with borrowers, annual interest rates on private money loans ranged from 7% to 10% between 2017 to mid-2022.

Remember, this is for short-term loans, with an average term of between 2 and 6 months. This includes bridge loans, fix and flip loans, and other similar short-term funding.

Now, it’s worth considering there are also private lenders that charged between 11% and 13% during this time for riskier loans.

Fast forward to today, and private are – unsurprisingly – charging borrowers more.

In a more recent update, PLL stated that:

“The interest rates for short-term loans up to 2 years are currently ranging from 10.5% to 13% for most lenders throughout the country, with the average being 11.5%.”

This reflects the overall increase in interest rates across all borrowing products. This has effectively made borrowing money for short-term real estate investments more expensive.

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Long-Term Interest Rates

For longer term private loans such as DSCR rental loans of up to 30 years, the impact of Federal Reserve rate hikes was much more immediate and powerful.

In early 2022, the interest rates being charged by private lenders for this type of funding started at 4.25%. Around 5.50% was the top of the range.

But since the Fed started hiking rates, lenders offering these types of loans are charging up to 9.80%. Even the lowest risk borrowers are being charged around 8.1%.

Origination Fees and Points

So, it’s fairly obvious that there has been a significant increase in the interest rates being charged by private lenders. But what about other costs and fees associated with acquiring a private loan?

For the most part, this hasn’t changed much. Private lenders usually charge somewhere in the region of 2% to 3%.

Of course, some lenders will add a bunch of other fees to the front end of a loan. These include documentation fees, underwriting fees amongst others, so upfront costs can soon start to mount up.

Conclusion

So, let’s summarize and see exactly what private lenders are charging right now…

For short-term funding (up to 24 months), expect to pay an interest rate of between 8% and 12% depending on the underlying project. For riskier fix-and-flip projects, expect rates at the higher end of this scale.

For short-term bridge loans secured against fully stabilized assets, 8% to 9% is standard.

For longer term DSCR loans of up to 30 years, expect interest rates of up to 10%.

In either case you should still expect to pay points and/or origination fees anywhere in the regions of 2% to 3%.

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